Déjà vu?

OK, so here it is, my first post! Now that I've officially started, I promise to do my best to post interesting articles with my comments on a daily basis. It's a New Years resolution, sixteen days late. Hold me to it, check out the link below, and let's get started!

"The Futility of the Government Airline Bailout"

             - Paul A. Cleveland and Michael D. Tucker

US Airways Flight 1549, originally scheduled to arrive in Charlotte from New York LaGuardia on Thursday, has gotten me thinking over the past forty-eight hours. Much has been said and written about the heroics of Chesley B. "Sully" Sullenberger III, the flight's captain who artfully guided the plane to a successful emergency landing in the Hudson River. While I was happy to hear that all 155 passengers and crew-members survived the crash, my mind started to wander elsewhere. As stated before, Flight 1549 came to its demise in the Hudson River, only a stone's throw from the Ground Zero. While most Americans have returned to their normal routine and put 9/11 in the rear-view mirrors, it seems that there is one item that connects us to that time just over seven years ago. 

The bailout. A little more than two weeks after the attacks, Congress passed the Air Transportation Safety and System Stability Act, a $15 Billion aid package to help the airline industry in the wake of 9/11. $5 Billion was paid out immediately, with $10 Billion set aside to guarantee loans. Unfortunately, the Air Transportation Stabilization Board (ATSB) was given such loose regulations that they were able to extend loan guarantees for just about any request that came across their desk. As a result, the federal government poured billions of dollars into inefficient "hub and spoke" airlines, many of whom would ultimately fail within two years of receiving government aid. The playbook was the same as it is today with the banks and auto makers. The government agreed to provide emergency funding in return for a few concessions by the airlines, centering on executive pay. Does this sound familiar? It should. 

All told, US Airways, whose Airbus A320 was just dragged from the murky Hudson, received an $800 Million initial cash infusion and $900 Million in loan guarantees. It's important to note that before they received government funding, US Airways executives tried to get financing from the private sector, but were summarily turned away by no less than twenty-five banks after their credit was downgraded to "junk" status by the major credit-rating agencies. Does this mean that the US Treasury Department is a better judge of credit than the private sector? Of course not! It just means that US Airways' credit worthiness was irrelevant, because what the hell, if they defaulted, the taxpayer would cover it. Does this sound familiar? It should.

US Airways filed for bankruptcy just eighteen months after receiving said funding, a fate shared with many in the industry. They eventually merged with America West, but kept the US Airways brand name. The main point is that US Airways didn't make the drastic changes necessary to compete with JetBlue, Southwest Airlines and the new, smaller, and more efficient competition that was and still is gaining market share from the dinosaurs (US Airways, American, Delta). Not making the significant changes necessary to compete in a forever altered marketplace...does this sound familiar? It should. 

All told, the taxpayer has been skinned and gutted again. In laying out $700 Billion for the TARP fund to rescue the banks, auto makers, and insurance companies, Americans have been saddled with an obligation that 90% of eligible voters didn't want. Oh and, of the $350 Billion that's already been spent, we can't account for most of it! Henry Paulson is doing for Timothy Geithner what Bush did for Obama, screwing up so badly that his successor can't help but be viewed in a good light in comparison. It's time for the bailouts to end. No one is too big to fail. While this philosophy might've caused the recession to deepen in the short-term, our short-term pain would lead to long-term stability. Now, with the Fed and the US Treasury Department intervening at every turn, we are only setting ourselves up for an even bigger meltdown. Trillions of dollars have been created out of thin air. Can you imagine what it's going to be like when inflation hits? The US dollar will be worth almost as much as its Zimbabwean counterpart. Find your wheelbarrow...you're going to need it to haul your money to the market.

By the way, been to an airport lately? Some return we've gotten on our investment...